Paragon Bank: A Fintech-Driven Play on SME Resilience and Growth

The UK's small and medium-sized enterprises (SMEs) face headwinds from economic uncertainty, but Paragon Bank has positioned itself as a beneficiary of their resilience—and its own technological transformation. With a 7.3% year-on-year jump in SME lending in early 2025 and a digital infrastructure that slashes processing times, Paragon is a compelling investment in a sector where fintech innovation meets enduring SME demand. Here's why the bank is primed to deliver long-term growth.

SME Lending Growth Amid Economic Challenges

Paragon's SME lending division reported £247 million in new loans through March 2025, a 7.3% increase over the prior year. This outpaces the broader market's 6.4% growth in asset finance, a key component of Paragon's SME portfolio. The bank's SME loan book expanded by 9.4% to £853.1 million, demonstrating its ability to capture market share even as UK GDP growth remains sluggish. Crucially, Paragon's focus on niche segments like hard asset finance—where lending rose 11.1%—provides a buffer against broader economic volatility.

Digital Innovation as a Competitive Moat

The bank's success hinges on its digital broker portal, which now handles 90% of new SME lending and supports one in three loans via auto-decisioning (up to £150,000). This automation reduces approval times by 60% and cuts payout delays nearly in half, enabling Paragon to process loans faster than rivals. The portal's direct application volume rose to 60% of all submissions, up from under 50% in 2024, signaling widening broker adoption.

The backend replatforming announced in early 2025—aimed at further streamlining operations—could amplify these efficiencies. By shifting underwriters' focus to complex cases while machines handle routine approvals, Paragon is reducing costs and improving scalability. This sets the stage for higher margins even as loan volumes grow.

Government Schemes and Market Share Gains

Paragon's participation in the UK's Growth Guarantee Scheme—a government-backed initiative to boost SME access to finance—adds another growth lever. The bank has already issued £18.3 million in loans under the scheme, leveraging its digital tools to onboard borrowers quickly. As the UK government expands eligibility for such programs, Paragon's tech-driven underwriting could position it as a preferred partner for SMEs seeking affordable capital.

Financial Resilience and Profitability

Despite macroeconomic pressures, Paragon's pre-provision profits rose 5.2% to £149.4 million in early 2025. Its total loan book grew 4.9% to £16 billion, with SME lending contributing significantly to an 11.4% surge in overall new lending. Management has emphasized that digital efficiencies are shielding margins: while processing costs fell, revenue per loan rose due to higher approval rates and faster funding cycles.

Investment Case: A Buy for Fintech and SME Exposure

Paragon's strategy aligns with two secular trends: the digitization of banking and the need for SME-friendly finance. Its SME division's 7.3% growth contrasts with broader banking sector stagnation, while its tech investments are lowering costs and enabling scale. The bank's 9.4% SME loan book expansion and 60% faster processing times suggest it can sustain growth even as peers struggle.

For investors, Paragon offers a dual thesis: long-term yield via stable net interest margins and market share gains in specialist lending. Risks include potential SME loan defaults if economic conditions worsen, but Paragon's focus on asset-backed lending (e.g., equipment finance) and government-backed schemes mitigates this.

Conclusion

Paragon Bank is more than a regional lender—it's a fintech innovator capitalizing on SME resilience. Its digital portal, auto-decisioning capabilities, and niche lending focus create a durable moat in a fragmented market. With scalable technology and a government-backed tailwind, Paragon is a buy for investors seeking exposure to SME recovery and banking sector disruption. The next 12–18 months will test its ability to grow margins further, but the foundation is already in place.

Hold for the long term: Paragon's SME and fintech bets are bets on the UK's economic future.